For the first time, the SEC has allowed a company to value the options it gives its employees based on market prices:

In its system, Zions created "tracking securities," called employee stock option appreciation rights securities, that emulate the options it awards employees. The company sold them to sophisticated investors in an auction last June, providing a market value for the options based on bids received _ which was only about half of that derived from academic models.

"We are thrilled to finally have this (SEC) letter in hand," Evan Hill, another Zions vice president, said in an e-mail message Tuesday to The Associated Press. "This is great news for all option-granting companies. Companies can now have the market tell them what their (employee stock options) are worth."

The SEC did attach some conditions to its approval of the method, including a requirement that the auctions be held on or near the date on which the stock options are granted to employees.

I assume they've covered the competitiveness of the auction.

I tend to trust Black-Scholes more for short-term options than for options with the lifespan of a typical incentive stock option.